Traditional betting companies predict the market, aiming to "dimensionality reduction attack" Wall Street traders

Author: Sportico

Translation: Azuma

Original Title: Traditional gambling giants forecast markets, aiming to strike Wall Street at a lower level

As prediction markets explode, two groups are watching closely — they come from Wall Street and Morton Street (home to Fanatics’ headquarters), one being professional financial trading firms, the other traditional betting service providers. Both believe they have the capability to become top predators.

Bookmakers Enter Market Making

Three traditional sports betting providers — DraftKings, Fanatics, and FanDuel — have all entered prediction markets to counter the threat this emerging sector poses to their core businesses. After investor sentiment cooled, these companies are accelerating their efforts, viewing their extensive experience in betting as a potential competitive advantage.

DraftKings, Fanatics, and FanDuel have begun or intend to provide “odds” through affiliated market makers in their prediction market applications. This is similar to their operations in traditional sports betting, but the key difference is — in prediction markets, they need to compete with third parties who can also place orders.

According to exchanges with Sportico, company executives, and industry analysts, there is currently no consensus that direct market making by bookmakers can yield higher returns than professional financial trading firms, but bookmakers are confident in the profit potential of market making.

FanDuel’s parent company Flutter Entertainment CEO Peter Jackson stated during the Q3 earnings call in November: “The core ability of a market maker is to accurately price complex and interrelated outcomes. That’s exactly what we do every day in our core business.”

Fanatics has an active affiliated market maker called Morton St. Market Maker LLC — named after its New York City office street, Morton Street, from where it’s within walking distance to some Wall Street competitors’ turf. Morton St. Market Maker provides odds for buy and sell contracts on Crypto.com, which is also the underlying prediction market platform integrated by Fanatics.

Meanwhile, DraftKings and FanDuel both hint at having affiliated market-making teams that trade against their clients, but it’s unclear whether DraftKings or FanDuel have officially established such entities.

To ensure all users can quickly enter and exit positions at near-fair prices, market makers typically provide liquidity on both “YES / NO” sides during specific periods. Their profits come from tiny spreads between “buy now” and “sell now” quotes. For example, if a user buys a contract on the New York Mets winning at $0.50, and the market maker previously acquired that contract via limit order at $0.47, the market maker earns $0.03.

Wall Street’s Counterattack

Opposing the bookmakers are professional trading firms from Wall Street.

Although firms like Susquehanna International Group have extensive experience in derivatives market making, some industry insiders interviewed by Sportico say that Wall Street’s ability to set odds for sports events is indeed inferior to traditional bookmakers.

Alfonso Straffon, who has worked in market making for junk bonds and sports betting on Wall Street, said: “I would remind those Wall Street firms not to underestimate; sports betting is an ecosystem that’s been around for a long time.”

Sports events pose more complex risk management challenges for market makers, especially during ongoing matches, where any development — such as injuries, weather changes, or coaching decisions — can drastically alter the true value of bets. “Order splitting” adds additional risk, and a single mistake can lead to huge losses. Once exchanges support leveraged trading, these risks are further amplified.

Advanced data models and the ability to access information ahead of the public — these are the advantages traditional bookmakers hold — and are crucial for risk reduction.

However, this does not mean bookmakers will necessarily dominate prediction markets. Another sports betting founder tends to believe that, with deeper capital reserves and experience adapting to different financial markets, Wall Street will ultimately achieve higher returns.

Susquehanna, Jump Trading, and other Wall Street firms lacking long-term sports experience are actively recruiting sports-focused market makers. Prediction markets like Crypto.com and Polymarket have recently posted related job openings for their trading divisions; Robinhood’s Rothera mentions an active affiliated market maker (sources suggest it might be Susquehanna) in their rulebook. Bloomberg reported this week that Jump Trading is investing in Kalshi and Polymarket simultaneously.

Sportico previously reported details about Kalshi Trading (Kalshi’s affiliated market maker), which is also working to bridge its sports experience gap — Kalshi co-founder Luana Lopes Lara previously stated on X that Kalshi Trading’s sports volume accounts for less than 6% of its total market making in November.

Competitive Advantages or Gradual Convergence

Market making isn’t a highly profitable business. When multiple companies compete on the same prediction market pricing, profit margins naturally shrink. In other words, the more market makers there are in a prediction market, the less profit each can earn per bet.

However, despite prediction markets with affiliated market makers potentially aiming to limit the number of market makers, the reality is far more complex. Without institutional capital support, overall market liquidity may suffer. Unless affiliated market makers invest large sums of capital (and assume corresponding risks) to fill the gap, user experience could be directly impacted.

This means bookmakers will inevitably compete with financial institutions for order flow from retail bettors.

Ultimately, as Wall Street firms hire sports-savvy talent (and vice versa), their competitive advantages may gradually converge. But at least for now, bookmakers entering prediction markets remain confident in their chances of success.